Some telling days ahead for markets on a number of fronts this week including interest rates, inflation, geopolitics and NVIDIA reporting.
Overview of Market Movements
A big week looms for markets this week following what has been an eventful period from a economic, geopolitical and company earnings perspective. Last week saw significant volatility in financial markets, culminating in a sharp selloff on Friday. In the U.S., the Dow Jones Industrial Average suffered a steep 748-point drop (-1.9%) to close the week at 38,400, driven by a combination of rising inflation concerns and disappointing corporate earnings. The S&P 500 and Nasdaq also declined sharply, shedding 2.1% and 2.8%, respectively, as investors reevaluated risk in light of economic data and shifting Federal Reserve expectations. In the U.K., the FTSE 100 fell 1.6% on Friday, mirroring global risk-off sentiment, while the Euro Stoxx 50 slid 2.0%.
Despite the downturn, some resilience was seen earlier in the week, particularly in European markets, which had been buoyed by better-than-expected economic data. However, as inflation worries resurfaced, bond yields spiked, pressuring equities across the board. Notably, U.K. banks performed strongly over the week, with Barclays, Lloyds, and HSBC posting gains as higher interest rates continued to bolster their net interest margins and earnings outlooks.
Drivers Behind the Friday Selloff
Friday’s steep losses were primarily triggered by the release of hotter-than-expected U.S. inflation data, with the January Consumer Price Index (CPI) showing a 3% year-over-year increase, exceeding economist expectations. This fuelled speculation that the Federal Reserve may need to keep interest rates higher for longer, dampening hopes for imminent rate cuts. U.S. Treasury yields reacted sharply, with the 10-year yield briefly hitting 4.66% before settling lower, contributing to equity market declines.
Disappointing earnings from major corporations also weighed on sentiment. Walmart, often viewed as a bellwether for consumer spending, printed a strong profit number that beat estimates, however, issued a cautious outlook for the current fiscal year, projecting sales growth between 3% and 4%, falling short of analyst expectations. Its shares tumbled 6.5% as concerns mounted over consumer resilience in the face of persistent inflation and higher borrowing costs.
Meanwhile, global trade tensions escalated after President Donald Trump announced a proposed 25% tariff on imports of pharmaceuticals, autos, and semiconductors, sparking fears of renewed trade disruptions that could pressure supply chains and corporate profit margins.
Key Economic and Political Developments
· U.S. Economic Data: Another week saw further scrutiny over Federal Reserve commentary and views of the inflation moderation story led to a pricing of a
interest rate cut trajectory that is slower than previously expected. Additionally, retail sales data showed weaker-than-expected consumer spending, reinforcing the uncertainty around economic momentum.
· U.K. Retail Sales: In contrast to the U.S., the U.K. reported unexpectedly strong retail sales, suggesting that British consumers remain resilient despite cost-of-living pressures. However, this strength may complicate the Bank of England’s (BoE) policy outlook, making it less likely to cut rates in the near term.
· Bond Market Volatility: Rising yields in both the U.S. and U.K. reflected investor jitters over the path of monetary policy. The BoE’s upcoming rate decision will be closely scrutinized, as inflation remains elevated but shows signs of moderating.
· Geopolitical Concerns: Ongoing tensions in global trade and speculation over potential political shifts in the U.S. continue to contribute to market uncertainty, leading investors to adopt a more cautious stance.
· Political Developments: French President Emmanuel Macron hosted U.K. Labour Party leader Keir Starmer, discussing potential post-Brexit trade policies, which could impact U.K. economic prospects. Meanwhile, Trump’s renewed campaign rhetoric on trade tariffs raised alarms about a possible trade war. Additionally, the ongoing Ukraine conflict remains a geopolitical risk, with continued discussions about Western support influencing energy and defence markets. Trump’s recent comments about Ukraine and its leadership have sparked concerns about future U.S. military aid, with European leaders scrambling to shore up support for Kyiv. Macron and Starmer’s visits to Washington this week are expected to focus on reinforcing Western unity on Ukraine while exploring trade agreements that could mitigate Brexit-related disruptions.
· Palantir: The AI software provider to the US Government and Military and top performer of the S&P 500 last year, saw big declines following budget cuts at it’s biggest customer, the Pentagon, and as the CEO sold shares.
Corporate Earnings Recap
· Walmart: Issued a softer-than-expected sales forecast, citing cautious consumer spending, leading to a 6.5% decline in its stock.
· Home Depot: Reported mixed earnings, with strong cost control efforts but weaker sales growth, reflecting a slowdown in discretionary home improvement spending.
· Centrica: The British energy company posted a strong profit increase, benefiting from higher energy prices and improved efficiency measures.
· NatWest: Reported solid earnings, bolstered by higher interest rates, but warned of potential margin pressure in the months ahead.
· BAE Systems: With geopolitical tensions rising, defence sector performance remains positive and BAE posted a 5% increase in profits for the year. Although given shares were trading a record high and more than doubled since the Ukrainian conflict, a high bar of expectation was set.
· Lloyds: Announced lower than expected results, however shares still reacted positively given strong net interest margins and an increase in it’s dividend.
Notable movers
FTSE 100
| Gainers | % | Losers | % |
| Centrica | 6.6% | Glencore | -8.3% |
| NatWest | 5.5% | Mondi | -6.6% |
| Standard Chartered | 5.3% | Barrett Redrow | -6.1% |
S&P 500
| Gainers | % | Losers | % |
| Super Micro | 17% | Axon Enterprise | -24.9% |
| Analogue Devices | 11.3% | Akami Technologies | -23.3% |
| Hasbro | 11.1% | Celanese Corp | -22.4% |
The Week Ahead: Key Events to Watch
Looking forward, this week will be crucial for markets as investors digest further economic data, central bank guidance, and key corporate earnings reports.
· U.S. Economic Data: The Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) Index, is set for release on Thursday. Given last week’s CPI surprise, markets will be watching this data closely to assess whether inflationary pressures remain sticky.
· U.K. Interest Rate Decision (Feb 27): The Bank of England is widely expected to maintain its Official Bank Rate at 4.75%, but speculation is rising over a potential 25 basis point cut given the recent moderation in inflation. Any signals from Governor Andrew Bailey on future policy direction will be key for sterling and equity market movements.
· U.K. Earnings Reports: This week will feature key earnings from major U.K. companies, including Haleon, London Stock Exchange, Ocado, Rolls-Royce Holdings, WPP, Aviva, IAG, Rightmove, St. James Place, and Pearson:
· Rolls-Royce (Feb 29): The aerospace and defence giant’s earnings will provide insights into ongoing restructuring efforts and defence sector trends.
· Nvidia (Feb 28): One of the most anticipated earnings reports of the season, Nvidia’s results will provide critical insights into AI and semiconductor demand. Investors have set a very high bar, with expectations of continued revenue and earnings growth fuelled by AI-driven computing needs. Nvidia has consistently outperformed market forecasts, and the key numbers to beat this time are a forecasted 72% year on year growth in revenue, and a 62% jump in Earnings Per Share (EPS). The market will also be keen to hear about the rollout of its next generation of Blackwell chips. Given the high expectations, any signs of slowing growth or increased competition from emerging players such as DeepSeek could trigger a significant sell off.
· Additional insights into U.S. consumer spending will come from major retailers Best Buy and Lowe’s reports, particularly regarding trends in home improvement and electronics. Whilst upcoming earnings from Salesforce and Dell will provide insights into corporate IT spending and broader tech sector resilience.
Last week underscored the fragility of the current market rally, with inflation concerns, earnings disappointments, and political uncertainty triggering renewed volatility. As we move into the final week of February, investors should brace for continued fluctuations, particularly around central bank commentary and major earnings reports.
Will NVIDIA meet the weight of great expectations when it reports this week and keep the A.I. investment boom thesis intact? Will US economic data alleviate concerns? Can US sentiment regain confidence and shrug off last week’s worries? Will the dour sentiment and low expectations continue to offer UK and European equities the conditions to continue their strong performance this year? What about interest rates? What about the BoE and the Fed? And then, what of Tariffs, Trump and Ukraine? We look forward to seeing some answers (or more questions) in coming days.